T.C. Memo. 2012-22
UNITED STATES TAX COURT
WILLIAM B. PERRIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 16712-10L. Filed January 19, 2012.
William B. Perrin, pro se.
Susan K. Greene, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: This action was commenced in response to a
notice of determination concerning collection action with respect
to unpaid trust fund recovery penalties under section 6672 for
five quarters ended from September 30, 2003, to September 30,
2004. With interest calculated through June 30, 2010, the total
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liabilities exceeded $399,000. Unless otherwise indicated, all
section references are to the Internal Revenue Code.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioner resided in Harris County, Texas, when he filed his
petition. Petitioner is single and resided alone in a house that
he owned at all times relevant to the issues discussed below.
The Watson Law Firm (Watson) was a professional corporation
owned 100 percent by Charles Watson. At all relevant times,
petitioner was Watson’s in-house accountant and office manager.
Petitioner had signature authority on Watson’s bank account and
signed payroll checks for Watson. Petitioner also signed
Watson’s employment tax returns for the quarters ended December
31, 2003, and March 31, 2004.
During the tax periods ended September 30 and December 31,
2003, and March 31, June 30, and September 30, 2004, petitioner
signed checks and paid Watson’s other creditors while Watson’s
employment taxes for those periods remained unpaid. Petitioner
followed Watson’s instructions as to what was to be paid in order
to preserve his job. During those periods, Charles Watson
enjoyed an expensive lifestyle. Subsequently Charles Watson was
imprisoned, faced State bar disciplinary proceedings, and was
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involved in bankruptcy proceedings. The employment taxes thus
remained unpaid.
On February 27, 2007, the Internal Revenue Service (IRS)
mailed a Letter 1153, Trust Funds Recovery Penalty Letter, to
petitioner, informing him that the IRS was proposing to assess a
penalty against him under section 6672 as a person required to
collect, account for, and pay over withheld taxes for Watson.
The letter informed petitioner of his right to appeal or to
protest the proposed assessment. Petitioner received the Letter
1153 and, through his then representative David Allie, submitted
a written protest. After a conference, the Appeals Office
determined that petitioner was a responsible person liable for
Watson’s unpaid employment taxes for the periods in issue here.
On June 11, 2008, the IRS made jeopardy assessments against
petitioner for the amounts in issue here.
On August 15, 2008, the IRS sent petitioner a Letter 1058,
Final Notice - Notice of Intent to Levy and Notice of Your Right
to a Hearing. In response to the notice, petitioner requested a
hearing through David Allie. The request for a hearing indicated
that petitioner was unable to pay the balances due and that he
would like to consider an offer-in-compromise or an installment
agreement, but he did not propose any amounts for these
alternatives. Petitioner did not challenge the existence or
amounts of the underlying tax liabilities.
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Between September 29, 2009, and June 17, 2010, several items
of correspondence and telephone calls were exchanged between the
Appeals settlement officer to whom the case was assigned and
David Allie, then acting on behalf of petitioner. David Allie
provided to the settlement officer information about petitioner’s
financial circumstances. The settlement officer reviewed the IRS
transcripts of petitioner’s account and verified that all legal
and procedural requirements for the proposed levy action had been
met. After receiving a Form 433-A, Collection Information
Statement for Wage Earners and Self-Employed Individuals, signed
by petitioner and a copy of petitioner’s 2008 Federal income tax
return, the settlement officer held a face-to-face hearing with
David Allie. David Allie requested that petitioner’s account be
placed in “currently not collectible status”. He did not provide
required forms for an offer-in-compromise or request an offer-in-
compromise as a collection alternative. He did not challenge the
existence or amounts of the underlying liabilities.
The settlement officer reviewed all financial information
David Allie submitted on petitioner’s behalf and consulted the
national and local standards established for living expenses for
a one-person household in Harris County, Texas, effective March
1, 2009. The standards set forth allowances for housing and
utilities, vehicle ownership, out-of-pocket health care costs,
food, clothing, and miscellaneous expenses considered as basic
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living expenses. Petitioner’s income, expenses, and taxes
withheld were determined based on his 2008 income tax return.
The settlement officer determined that petitioner could make a
monthly payment of $2,438 against the outstanding employment tax
liabilities. By letter dated February 1, 2010, the settlement
officer offered petitioner a partial payment installment
agreement of $1,257 per month beginning February 24, 2010,
increasing to $2,438 per month on October 24, 2010. The proposed
agreement gave petitioner time to reduce his expenses to the
standard amounts used in the settlement officer’s computations.
By letter dated February 24, 2010, David Allie sent to the
settlement officer a copy of petitioner’s Form W-2, Wage and Tax
Statement, for 2009, showing a reduction in his earnings compared
to 2008 and increased taxes withheld. The settlement officer
then determined that petitioner could make a monthly payment of
$1,944, using standards for a one-person household in Harris
County, Texas, effective March 1, 2010. By letter dated March 4,
2010, the settlement officer informed David Allie that the amount
of Federal income tax petitioner had chosen to have withheld was
overstated and could be reduced to allow more cashflow for him to
apply to the unpaid liabilities. The settlement officer offered
petitioner a partial payment agreement of $783 per month
beginning April 24, 2010, increasing to $1,944 per month on
October 24, 2010. After receiving additional information
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concerning legal fees petitioner owed, by letter dated April 2,
2010, the settlement officer offered petitioner a partial payment
agreement of $583 per month beginning April 30, 2010, increasing
to $1,744 per month on October 30, 2010, and further increasing
to $1,944 per month on October 30, 2011. Petitioner refused to
enter into a partial payment agreement for anything over $479 per
month. On June 17, 2010, the notice of determination sustaining
the proposed levy was issued.
OPINION
In his petition and at trial, petitioner argued that he was
not a responsible person subject to section 6672 penalties for
failure to pay the employment taxes at issue here and that it is
unfair to require him to pay taxes that should be paid by Charles
Watson. Petitioner, however, had a prior opportunity to contest
the underlying liabilities and is thus precluded from doing so in
this proceeding. See sec. 6330(c)(2)(B); Lewis v. Commissioner,
128 T.C. 48, 50-61 (2007); McClure v. Commissioner, T.C. Memo.
2008-136; sec. 301.6320-1(e)(3), Q&A-E2, Proced. & Admin. Regs.
Moreover, petitioner’s representative did not raise the
underlying liabilities before the settlement officer and may not
raise them here. See Pough v. Commissioner, 135 T.C. 344, 349
(2010); Giamelli v. Commissioner, 129 T.C. 107, 111-114 (2007).
Petitioner stipulated that the settlement officer was
impartial and had no prior involvement with the tax periods
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involved in this case and that she verified that all legal and
procedural requirements for the proposed levy action had been
met. See sec. 6330(b) and (c). Thus our review of the notice of
determination is for abuse of discretion. See, e.g., Jones v.
Commissioner, 338 F.3d 463, 466 (5th Cir. 2003).
Proof of an abuse of discretion requires a showing that the
Appeals action was arbitrary, capricious, or without foundation
in fact or law. See, e.g., Giamelli v. Commissioner, supra at
111. In view of the record of the settlement officer’s
consideration of the financial information petitioner’s
representative submitted and downward adjustments to proposed
partial installment agreements, we cannot characterize the
settlement officer’s determination as arbitrary or capricious.
Petitioner raises arguments about the assumptions in the
settlement officer’s computations about his tax liabilities. He
contends that if he were to sell his house to bring his expenses
to the national and local standards applied in his case, he would
be unable to itemize deductions and would pay more in Federal
income tax. This argument was not made during the administrative
proceedings by petitioner’s representative, and it cannot be used
to show an abuse of discretion. See id. at 115; Magana v.
Commissioner, 118 T.C. 488, 493 (2002).
In any event, petitioner’s arguments about the details of
the settlement officer’s computations are unavailing. The use of
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local and national standards is expressly authorized by Congress
and does not constitute an abuse of discretion even if it forces
a taxpayer such as petitioner to change his lifestyle. See,
e.g., Speltz v. Commissioner, 124 T.C. 165, 179 (2005), affd. 454
F.3d 782 (8th Cir. 2006). Petitioner does not contend that the
standards were misapplied. In reviewing for abuse of discretion,
we do not recompute the appropriate amount of an installment
agreement. Id.; Orum v. Commissioner, 123 T.C. 1, 12-14 (2004),
affd. 412 F.3d 819 (7th Cir. 2005).
As respondent’s counsel indicated at trial, petitioner may
continue to negotiate with IRS collection officers concerning his
tax liabilities. He is, however, entitled to only one
administrative hearing and court proceeding with respect to the
proposed levy. To reflect the foregoing,
Decision will be entered
for respondent.